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Eat Peas and get Confidence – Not!
Obama said some interesting things at his press conference yesterday.
Central to his words was the theme that when the USA get its hands on
the debt ceiling crisis and establishes a framework for a return to
fiscal reality there will be a resumption of confidence. With that
renewed confidence would come more consumer spending, more business
spending and investment, investors (both in and out of the country)
would be looking for new opportunities to put money to work. The
confidence that would come from a resolution of the budget dilemma
would, by itself, be the tonic the economy needs to get moving forward
again.
I think that is all rubbish. I will try to make the
case that exactly the opposite will happen. There may very well be a
relief rally for a bit after news of a deal. But I say that relief will
turn to fear in a matter of months. Start with the President's words
that I thought were important:
He made it clear on several occasions; The time is now.
We have to eat our peas.
But no sooner did he make clear his commitment to tackling the problems he said this:
I want to be crystal clear. Nobody has talked about increasing taxes now. Nobody has talked about increasing taxes next year. We’re talking 2013 and the out years.
This reconfirms old news. Anything that will come as part of the Plan will not be effective until 2013. No cuts, no tax increases.
This next part confirms what I (and others) have been saying. As part of
the deal to raise taxes and cut spending in future years there will be a
short-term stimulus program. The President made clear what will be a
part of the package:
(cuts in FICA payroll taxes) would be a component of this overall package.
Now take a big leap and assume that this happens. What will we have?
*In 2012 there would be an expansion of the (one time only) reduction in payroll taxes.
Employees would get an additional 2% reduction (total 4%) and employers
would get a 3% cut. This reduction would be tied (in part) to job
creation.
*In 2012 there would be no other changes of substance to the current 2012 budget. The total additional stimulus would be $350 billion (all through FICA reductions). The new stimulus would provide a boost to GDP of about 1.5%.
HOWEVER
Starting in January 2013 the roof will cave in. The short-term stimulus will have ended. The cuts and new taxes will be kicking in.
*Workers will get hammered. They will face a 4% increase in
payroll taxes (versus the December check). That comes to $2,000 per year
for the average family. That’s a very big number and it hurts the
bottom end of wage earners the hardest. The YoY change will result in an
increase in worker's FICA taxes by $240 billion!
*Business FICA taxes will also go up $120 billion. With that increase (reversal of the “one time” holiday) will go any incentives for hiring new workers.
That’s just a reversal of the
short-term stimulus that returns us to “normal”. Then there would be
those new tax increases/spending cuts.
*The Bush tax cuts on +250k will be gone. That will be another $50b that gets transferred to the Feds.
*The AMT is going to have to be re-indexed. This hideous tax will
hit millions of taxpayers in 2013. It will cause homeowners with
children to scratch their heads in dismay. Family incomes above $105k
will all pay higher taxes as a result. Call that another $50b.
*Corporate taxes are going up. This will not add up to much. Maybe $20b guts sucked away from the fat cats.
*Speaking of fat cats, the Hedge Fund crowd will lose their special tax position. Their income will be treated as “Ordinary” versus “Capital”. That’s another $10b or so out of circulation.
*Taxes on dividends and capital gains are headed higher as well. This will be phased in over time in an effort to appease the big Wall Street donors. It could add up to $20b in 2013.
*Deductions of all sorts are going to be getting phased out. This will not be a big $ item in 2013, but anyone looking at the future will realize that most “prized”
deductions will be lost in less than five years. This too will change
the mood for investing in something like a house. It might even change
one’s plans for having a child. There won’t be any deductions for the
$400,000 it costs to raise a kid these days.
*The rate of automatic increases (COLA adjustments) for Social Security will be altered.
Those on SS will not see a lower check in Jan. 2013. But they can
expect to see that the checks will not grow anywhere near as fast as
inflation for the next twenty years or so.
That will scare the crap out of a bunch of them. How will they respond?
Trying to cut back on some more spending is the only way. It’s
impossible to measure this reaction, but it surely will be felt to some
extent. This too will be a drag on GDP.
*The rate of increases in Medicare/Medicaid disbursements will be altered.
Instead of running full speed into financial oblivion these programs
will lower the trajectory of expenditures to a walk. Whatever
expectations you now have regarding the growth of the health care
industry, you have to take them down a notch or two post 2013. That’s a
massive change in thinking. Every hospital, doctor and
treatment/diagnostic facility will be gearing down future plans.
I could go on for a fair bit. I hope you get the picture. The Plan that
Obama outlined is going to result in a massive YoY adjustment in 2013.
The reversal of the FICA (one time) tax holiday is $350b. Other tax
increases could easily add up to another $100b. This is equivalent to a
3% immediate hit to GDP. I can’t think of a bigger historical YoY shift
in taxes.
As I suggest, there are many other factors that will come into play.
Consumption patterns and investment decisions will be altered. It all
adds up to a very murky economic picture starting in 2013.
Obama is right when he says that confidence is a critical component of economic expansion. My question is:
“How are people going to be feeling a few months from now when the euphoria passes and the reality sets it?”
The press will have a field day with the story. Every blue chip
economist and Wall Street pundit will be pointing to the same charts and
concluding:
A recession is likely in 2013
Fear of the future is a powerful force. People will have a year to worry
about the changes that are coming. They will worry over how those
changes will affect their pocket books. I can’t think of a more
depressing scenario.
There might be a month or two of renewed confidence following a budget
deal. By wintertime it will fade. It will be replaced with the exact
opposite. How could it not?
»
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Community Organizer vs. Community Builder
No wonder he can't accomplish anything productive on any sort of reasonable schedule. He wants credit for ideas (which are spoon fed to him, like the baby he is, by the very people responsible for the mess the nation is in).
Eat our peas?
As a teen when I'd give my mother a ration, she'd say: "Listen kid: your chickens are going to come home to roost." (My wife later complained that my chickens were coming home to roost on her).
Seems like Obama wants US to eat HIS peas, as this largess will not impact his majesty in the slightest.
you mean in 2013 the Congress won't vote to extend the one time payroll tax cut? When you kick the can down the road, make it a long road, the longer the better.
I kept inserting the (one time) thing for the reason you mention.
If we get to 2013 and things are still lousy (they will be) then they will break the promise on the budget and cut FICA for another year.
This will be the break of a very big promise on our debt profile. The USA would lose its AAA. Confidence in our debt managment would collapse. The bond market would run into trouble due to the lack of confidence.
So yes, they could do that. But there will he hell to pay if they do.
And in 2013 when the vote comes up, the negative impact to the economy will be shifted over to not extending the cut. It will be lesser of the two evils. For the moment it's just another calculated and cynical political move.
One thing I can sometimes find humorous is that even here, people seem to be in denial that it was the boom that was fake, not so much the crash after. (ok, I got my asbestos on, flame away)
And since I moved out to the country long ago (3 decades), into this very different world, with minimal ties to "life as y'all know it", things are just looked at differently here. As a poster above said -- we all know the government lies and doesn't give a crap about our interests here in farmland, and we return the favor, work for cash, give them nothing...Heck we even know how much they miscount our votes by, we all voted for Ross Perot as a goof, and when the results were reported, he got none from our district as they didn't have their own rep here to keep the republocrats honest and not just toss those votes out. Despite lines, no turnout reported, you know. Easy to keep hidden in a city, but where everyone knows everyone (and rides together to go vote) it was pretty obvious.
And in the crash, not one of us lost much at all. Our land didn't go up stupid in the boom, and didn't have much if anything to correct after. None of us lost skills, tractors, livestock, tools, bank accounts, root cellars, and so on and it's only fairly recently we've noticed the prices in what little we buy in stores going up. I'd bet our Amish neigbors didn't notice at all. How's that for ya?
Self importent (impotent?) end-of-the-world doom-and-gloomers, take that. Your fake world built off paper might end, and soon. Mine? Heck, I just play in your world for fun, when it is fun. When it becomes not fun, I'm gone. I'm only in your world via internet anyway. In meat existence, I live in paradise.
Ok, flames off. I don't want your world to end, because it's going to try to mess up and steal the good out of mine when it does, and it's messy to clean up after shooting a bunch of y'all in self defense, and make no mistake, farmer brown is ready. So get it straight people, quit whining about the TBTF and The Powers That Be and admit that they only live at your permission at all and really don't have power you don't hand them yourselves. No man can make you do anything whatever, not even take your next breath against your will. So it's all voluntary, and I'm getting tired of this victim mentality - or as Christie Lavin said -- are you a victim, or a volunteer? Did your greed let them sucker you into their worldview? Obviously, it did (see CD's screed up top -- I began life thinking I was an alien that just looked like a human, so I've held this viewpoint a long time now).
That's how all con men work -- they play into your own lies, whether to yourself or to the world, and tell few of their own - no need. So man up, grow a pair, realize that its your life and whining about volunteering for victimhood only impresses a few others like you, but not me and many others.
Don't complain, fix it. Get up in their faces til they can't ignore you anymore and they submit to you. Ghees sheeple, I sometimes wish I WAS an alien so I could disavow any attachement to this sickness I see all around the world, except in places far from what's stupidly called "civilization".
Oh shit, did I say that out loud? Sorry...
+12 Gauges
Bravo.
freebasing peas
polishing my gold...
Anyone in Congress propose an AMT for corporations? Since the GEs, Toyotas, News Corpses, etc never seem to pay taxes it seems like a reasonable thing to do.
a total non-starter.....too logical, reasonable, sensible, etc. and besides, smacks of "fairness".... forget it
We are approaching "The End of Debt," and "The End of Growth,". The first means that promises to pay will be revealed to everyone, to be null and void, and that anyone holding a promise will get either nothing, or 2 cents on the dollar (if that).
The End of Growth is the revelation that, with 6.5 billion people on the planet, and several hundred million expecting to live a "US-style, middle class, existence," that we are out of resources, and would need several earth-like planets to make up the shortfall. Thus, the idea of "growth," upon which all economic prosperity is based, which is an exponential function, has hit the wall of reality.
Everyone on the planet is about to be disabused of their fantasies. The hardest thing will be for people to change their mental model.
Good Luck to all of us.
I heard we were close to reaching, and breaching, the big 7 billion target.
Since we are stuck on just one Earth, instead what could occur is the global population gets cut to one half, or one third, of the current figure. First world nations, especially attentive ZHer's, should be one step ahead of the great culling. Looks like third worlders will be the sacrificial offering to placate the fury of financial reckoning.
Let me fix that for ya...
*The Bush tax cuts on +250k will be gone. That will >>>only<<< be another $50b that gets transferred to the Feds.
You're always fixing stuff for people. You gonna be a handyman when this thing winds down? </kidding>
Good to see you while logged in. I found your comments interesting last night. On the road, myself. Not too much chance to argue...lol.
My attempts at trying to fix stuff are about over. I'm starting to think its time to tear it apart and start over...what better way than to let it proceed as its going ;-)
SPINACH BITCHES!
Hmm, 2013, that sounds like a good time for a recession to bloom. Nope, no planning around a certain election date, just doing our part to keep America strong.
2011: Expect turbulence, choppy winds on the radar. Your pilot is certified, no cause for alarm.
2012: Fasten your seatbelts, affix oxygen masks, be as calm as Hindu cows.
2013: Send someone in a catamaran to go diving for that black box. What goes up must come down.
2014: Still searching for the black box...
General "Buck" Turgidson: Mr. President, we are rapidly approaching a moment of truth both for ourselves as human beings and for the life of our nation. Now, truth is not always a pleasant thing. But it is necessary now to make a choice, to choose between two admittedly regrettable, but nevertheless *distinguishable*, postwar environments: one where you got twenty million people killed, and the other where you got a hundred and fifty million people killed.
President Merkin Muffley: You're talking about mass murder, General, not war!
General "Buck" Turgidson: Mr. President, I'm not saying we wouldn't get our hair mussed. But I do say no more than ten to twenty million killed, tops. Uh, depending on the breaks.
These DC guys seem to have no ability to grasp that broke-ass people without jobs can't take out loans to consume Chinese-made crap.
I think Barry said "We have to drink our pee".
The USSA has been in depression since 2008 or earlier.
The numbers are jiggered to pretend this is not true.
Here is what happened, except translated into a more personal scale equivalent to illustrate:
#1: Your neighbor lost his lucrative job in 2008.
#2: Before his bank found out, he borrowed $500,000.
#3: He activated the (on average) 5 credit cards per month he receives, and has charged everything on them since.
#4: Because he is making minimum payments, which results in the greatest theoretical profits for the credit card issuers, he is now receiving 10 new credit cards per month mostly with 6-month no-interest terms.
#5: Given the wealth of easy credit, he has decided to help the general economy by buying... well... just about everything you can imagine: 3 fancy new cars, a swimming pool behind his house, a huge RV and yacht to pull behind his RV, really gorgeous landscaping around his house, you name it.
#6: The neighbors are very impressed. The pretty girls practically queue up at his front door, which his wife rarely and barely notices since she's always out spending money at the mall or on a vacation with her friends.
#7: Finally your neighbor has every credit card that exists, and so the flow of new ones dries up. No problem, the last batch still have a few months of zero-interest with balance transfer options.
#8: EVERYONE claims your neighbors GDP is doing great.
THIS is how GDP in the USSA is being calculated. Yet the media and majority of clueless morons actually accepts the bald-face LIE that growing GDP is a good thing, even when debt is growing several times faster!
Of course you can "buy lots of product" when you "borrow lots of money". But that is not growth, that is consuming your future seed stock, and is absolute certain disaster in spades.
-----
Sadly, at this point in history, about 95% of westerners deserve to be at ground zero when the nuclear monetary explosion occurs, because they are complicit for being willfully blind to obvious facts, frauds, fictions, fantasy and fractional-reserve-criminality-gone-wild.
Sadly, most of the other 5% will be harmed in the certain catastrophe that can no longer be avoided.
To any sane individual who remains non-braindead this late in the game: convert ALL your paper assets to physical gold, guns, ammo, seeds and other survival goods... then get out of dodge (the USSA) before it becomes [near]-impossible.
Cuz the falling nuke of insanity is certain to explode in a massive ball of pain and overt slavery for everyone who is not very, very, very well prepared... and far, far, far away from dodge.
My neighbor did that. Stupendous lifestyle. Scarabs, AMG Mercs, 911s, house remodel, and then suddenly ... there was a knock at my door. A little fellow asked me where my neighbor was. He was the paperboy. The guy left without telling anyone and stiffed the paperboy! The house was stripped bare. A dozen legal notices were tacked on the front door. I fully expect the USSA to crash the same way. Washington DC will be empty. The Halls of Congress will echo in silence. Wall Street will be silent. All our illuminati will be partying on the Italian Riviera.
Boy, I hope you are correct.
Then everyone left in the USSA simply declares DEFAULT, shuts down the government of the USSA following the example of the USSR, and leaves everyone to rule themselves.
People don't realize how quickly regular folks can create a rich prosperous society without predators riding their backs 24/7 in 54703584390854903 ways.
Not a bad analogy. I liked it.
However, 100% of westerners who are not filthy rich will suffer terribly. But you know whose complaints we will see published on the front page? Sure you do. It, of course, will be the complaints of the filty rich.
The McConnell Plan certainly deserves a full photo shoot spread in next month's "Irresponsible Fuckheads" magazine, in your grocery aisle.
McConnell makes Pontius Pilate look like an amateur!
QE on/recession off. QE off/recession on.
Now that Bernank has rid himself of that pesky Paul, he can really load up the fiat dynamite for '12. Getting the Messiah to the finish line is key to his job security in '13...or he could be planning an exit with a full BHO pardon. Hard to disagree with Bruce on '13 when gas will be at 7 fiatscos.
Jesus Christ, Bruce. I realize you're talking technical realities, but recession means something different to working people than it does to traders and economists.
We've been in a recession for a very long time down here where my people live, sir, and it's starting to get just a tad existential in its implications. People are starting to use the 'D' word. Just sayin...
Living in a similar demographic, I agree, but most of the proles who bother to check haven't *believed* anything reported as national economic data for quite some time.
In other words: they know it's all a lie, so they don't pay that much attention to it. They also know the government doesn't represent their interests or care about their priorities.
This is why there's such potential for collapse of national government. Folks want their welfare/foodstamps/whatever, but they don't "support" the government that sends the checks.
...so many things, brother. So many things, but it is not the welfare class that is intensifying the potential for gov collapse. Our people will merely be the first deposit to the American charnel house.
The welfare class is a null factor in all this if one stands atop the 680 trillion dollar pile of shit at the BIS and surveys the landscape.
The welfare class is a null factor
Naw. They matter more than you think--that's why there's hope even though they've been completely stripped of political power and access to media institutions. They are a null factor only if you believe meaningful movements can only come from government and/or dominant power institutions.
My take's simple: WHEN there are sufficient numbers of people ready and willing to change society, society changes, regardless of who is "on top" or "in control." There are not enough police, soldiers, politicians, or priests to keep us in line.
If just 10 million Americans decided to start solving their real problems, I assure you things would happen very quickly, and there'd be no saving this current regime. I'm not talking about civil war or violence--just a concerted effort to better their own options and futures.
Well taken. You are right. I was talking financially. You are talking on-the-ground reality.
Great post.
Off topic, but click below to see Ben Bernanke's reaction to Ron Paul's retirement:
http://metthatceleb.blogspot.com/2011/07/ben-bernanke-words-cannot-decri...
"We have to eat our peas" Translated: You have to swallow his poo.
Cuddlefish and Asparagus OR Vanilla paste
I keep seeing Neville Chamberlain stepping out of the plane from signing the Munich agreement.
"Peace in Our Time"
*cough*
They'll come up with an agreement, a bill, a photo-op, but it will be nothing but paper.
I'm an old, broken down piglet.
I talk to younger folks about these things and mention "Peace in Our Time."
Blank stares--then skoshi' discussion as an entree to WWII -- Then not as many blank stares, but a lot.
NEA as an organization, and its sugar-tit the so-called "Department of Education" have a lot 'splainin' to do. But my first and second suggestions wrt the budget messes are:
a) erase the "Dept. of Education" since their efforts suck and education has continued to melt under their regime. c.f. most recently Atlanta.
b) erase the "Dept. of Energy" since they have failed to gain energy independence since like 1980.
That's a good start.
- Ned
My Son had no mention of George Orwell and 1984 or Animal Farm in his 12 years of public school.
A failure by any measure in my book.
I hear you.
My good friends... I believe it is peas for our time.
Ron Paul says Don't Pay The Ficticious $1.6 Trillion Debt to The Federal Reserve they created it out of thin air anyway.
http://www.youtube.com/watch?v=QGXbKsFH_sI
(@1:10)
The sci-fi movie continues. It is painfully slow for those who see it coming early. There are definitely many who saw it before I did. They must be so very irritated by the slow pace.
No dolly. We knew it would take time and it will still take time. Been watching this movie for a while now and do feel our patience is starting to pay off. Not going to be a non stop event. Lots of interruptions in between the main show. But that is ok.
Not a bad plan we have here.
A planned presidency to destroy America; engineered by the elites.
Photoshop experts have already deemed the birth certificate a phony. Their analysis makes a lot of sense.
Obama registered at Occidental College as an Indonesian on a Fullbright Scholarship, but that's been totally covered up.
Just think back about all of the W vetting, especially with the Air National Guard; cocaine and alcohol use and his grades at Yale. Obama's years from 20 to 35 are a complete mystery. No ex girlfriends have come forward; no college roommates, etc.
We've been so had.
Is this some kind of WAKE UP or kick the can?
The lack of math on who can actually pay is lacking.
Knee jerk garbage. Same reasoning that brought on the mess.
Another 3 trillion in dollar destruction, and I won't be able to afford a can of peas. In fact, at the local groc chain, a can of store-brand peas has gone from 89 cents to $1.19 in the last month. And 20%+ real unemployment isn't a recession, it's a Depression. Right Now. I cannot imagine what world Krasting and the rest of the Wall St. crowd are living in. Just so it's gone soon. Real soon.
What a good post. You report on a lot of things I'm far too lazy to find out about; also I couldn't possible listen to an Obama speech; it would ruin my whole day. Thanks for doing it for us.
How can you seriously believe the payroll tax reduction will end with 2012?
it costs $400,000 to raise a kid these days.
That's an interesting number, BK. May you point to the source you got it from?
This Bloomberg report says the number is $225,000 through age 18.
I add to this the cost of college. The fully loaded costs of 4 year college will get you $40k per year. So that is where I get the $400k.
http://www.bloomberg.com/news/2011-06-09/u-s-child-born-in-2010-may-cost...